What's your outlook on a company like DIRECTV these days?

The company is on track to roll out up to 150 HD [high-definition] channels in 2008 and 200 channels in 2009, which should continue raising ARPU and help stem decelerating subscriber growth as DTV overtakes EchoStar's (Nasdaq: DISH) HD lead with twice as many HD channel offerings, while the cable companies are several years away from catching up, in our view.

We think the HD roll out with the Regional Bell Operating Companies (RBOCs) as partners, will defend DTV's market share against cable's ability to offer video, voice and data ('triple play'), which together with recently tightened credit standards have been impeding subscriber growth.

So you have a Buy on the shares currently?

We do. At 16.6x our 12-month forward EPS estimates, DTV shares trade at a discount to our estimate of its 5-year EPS growth rate and, in our opinion, will outperform the market.

At present, DTV offers local HD channels in 77 markets representing 76% of U.S. TV households as well as over 95 national HD channels. When the rollout is completed, the company will offer local HD broadcast networks in more than 100 markets, representing more than 84% of U.S. TV households.

Are satellite companies in general performing better than cable?

Cable as a group is lagging far behind satellite in terms of number of channels offered and capacity upgrades, and conversions to digital technology could likely take up to seven years. This dramatic capacity increase should enable DTV to better stave off competition from the cable companies, reducing churn. The DBS operators (direct broadcast satellite) are facing increasing competition from the cable operators at a time when the industry is maturing (80% of total US households have multi-channel video).

And the cable service providers have the technical advantage of being able to offer the 'triple play' package of VOD (video-on-demand), local HD (high-definition video), high-speed Internet access and telephony. The DBS firms including DIRECTV cannot provide VOD, Internet access or telephony because their platforms lack two-way interactivity (no uplink).

Consumers, many of whom do not opt for the VOD feature, are attracted to cable providers because they like the convenience of having all their services on one bill as well as the discounts the cable companies are able to offer by bundling the services. The alliances with the RBOCs (ie. regional bell operating companies, or local bell phone companies) should level this playing field.

What other media companies in our coverage are newsworthy?

We have recently downgraded our rating on shares of Cumulus (CMLS) from Buy to Hold. Rising credit risk premiums and collapsing valuations have left the market skeptical about the viability of the July 2007, $1.3 billion management buyout offer for Cumulus. Led by CEO Lew Dickey and Merrill Lynch Global Private Equity, the deal calls for $11.75 per share plus the assumption of roughly $736 million in debt, equating to an EV of 14.0x 2008E EBITDA.

The stock has fallen since the deal was announced and now trades 45% below the offer price at 12x 2008 EV/EBITDA, a 3-point premium with the peer group multiple of 9x (peer group has contracted by 2x). In our view, the deal will either get done at a lower price or not at all (Merrill Lynch's walkaway fee is just $15 million). If the deal does not go through, we think the shares could trade back down in line with its peer group at 9x 2008E EBITDA or $5.50.

Don't the fundamentals of Cumulus still look good relative to its competition?

Although its revenue pacings are ahead of the industry, the company is burdened with near industry-high leverage, which in turn will likely slow the current pace of its massive buyback program. Therefore, we do not think the shares deserve a premium valuation to its peers. Moreover, at this point in radio's cyclical and secular slowdown, we see no near-term catalysts for CMLS shares to outperform the broader market.